Are Cryptocurrency Exchanges Safe enough?

Recently, Cryptopia, the New Zealand based cryptocurrency exchange, joined a long list of exchanges that have been attacked by hackers. On 14th January, the exchange stated officially that they had suspended trade as soon as one of their staff members reported security breach and identified the hack. The exact amount of loss wasn’t revealed, but reports have claimed that the breach has moved Ethereum worth at least $2.4 million to several different wallets.

Nonetheless, as soon as news of the incident spread on the internet, enthusiasts and users started keeping track of currency exchanges through social media. Some of the funds landed on Changpeng Zhao’s Binance trade, who, ironically, made a mockery of security of exchanges like Cryptopia just a day after the incident. After identifying the tokens with Topia tokens, Binance did freeze them and confirmed it via a tweet.

Sadly, this is not the first incident which compels us to think whether these exchanges are safe enough. There have been instances throughout 2018 where cryptocurrency worth more than $731 million was lost due to hacks on exchanges. Digital currencies like Ethereum Classic, Bitcoin Gold, and Zencash suffered 51 percent attacks, causing loss of millions of dollars. These attacks have challenged the very philosophy behind cryptocurrency. Eliminating human interference and maximizing security were the promises which made cryptocurrencies so popular and hackers have proved us wrong time and again.

Following the recent attack on Cryptopia, industry leaders like Zhao, CEO of Binance, have said that crypto enthusiasts must focus more on Decentralised Exchanges (DEX) to avoid such losses. However, people like Kraken Cryptocurrency Exchange co-founder Jesse Powell feel that simply switching to DEX is not the ultimate solution. It is time that cryptocurrency masters focus more on improving systems to prevent security breaches instead of relying on systems that help identify breaches sooner.

Storage of cryptocurrency has been threatened time and again, and yet, we don’t know which storage method is best. While Zhao emphasizes that DEX is where you should store your currencies, Powell says that users shouldn’t store digital currencies more than required to trade actively. He suggests that cryptocurrency owners should use hardware wallets like Ledger and Trezor, as these are more reputable.

Though security breaches like the 2014 Mt Gox haven’t reoccurred in the recent past, breaches like this one on Cryptopia remain a serious threat. As expected, the market was down by few points after the news spread. Such incidents are the primary reason why countries like India, which have immense potential for the market, have behaved allergic to cryptocurrencies. If incidents of hacks on exchanges are not curbed soon, conquering forts in developing market will become even more difficult.

Blockchain technology, on which cryptocurrencies function, however, has developed leaps and bounds regarding security. Banking giant HSBC was able to execute forex transactions worth over $250 billion in 2018 using blockchain. This, in itself, shows that the security of blockchain technology can be improved continuously and the same can be applied to cryptocurrencies as well.

So, are Crypto Exchanges safe? It’s tough to answer this, but one thing is for, sure. There is immense scope for improvement and a long way to go!